Extended Timeline for Enhanced Compliance Measures on Tobacco Product Manufacturers

The government has acknowledged the needs of manufacturers of pan masala, gutkha, and similar tobacco products by giving them additional time to adapt to new compliance procedures. The Central Board of Indirect Taxes and Customs (CBIC) has pushed back the deadline for implementing a specialized registration and monthly filing system, setting a new date of May 15 for full compliance.

Previously, it was announced that these new measures would be introduced starting April 1, 2024. However, this timeframe has now been extended by 45 days. The overhaul of these registration and filing protocols is part of a broader strategy aimed at tightening the Goods and Services Tax (GST) compliance net around the production and sale of tobacco-related items.

Critical to these revisions is the amendment brought forth in the Finance Bill 2024, which stipulates stringent penalties for manufacturers who neglect to register their packing machinery with the GST authorities, with the effective date being April 1. Notably, though the amendment has been passed, the penalty provision itself awaits notification.

The procedures encompass a wide range of products, including pan-masala, unmanufactured tobacco (whether sold with or without a brand name), ‘Hookah’ or ‘gudaku’ tobacco, various smoking mixtures for pipes and cigarettes, chewing tobacco sans lime tube, filter khaini, jarda scented tobacco, snuff, and both branded and unbranded ‘Gutkha’. In essence, it captures the entire spectrum of the tobacco product market, ensuring a comprehensive approach to regulation.

Accompanying these new provisions was a requirement for manufacturers to submit details of their packaging machines through Form GST SRM-I electronically. This had to be done within 30 days post the issuance of the directive, which initially meant a deadline aligned with the onset of April. Furthermore, a specialized statement for return filing, known as GST SRM-II, had to be filed by the tenth of each succeeding month.

The extension was announced via a CBIC notification, which indicated the need for a calibrated approach to implementing such sweeping changes. Industry experts, such as Rajat Mohan, the Executive Director of Moore Singhi, have noted that the GST Network had not issued any advisory regarding the updated procedures, nor have the new filing utilities been released. The consequence of this delay is a momentary reprieve which the government has conceded to manufacturers, now required to gear up for a mid-year implementation of the scheme.

Mohan pointed out the logistical challenges faced by the industry, underscoring the advantage of launching new regimes at the beginning of financial years for smoother transitions. Any deviation from this norm inevitably results in complications and could potentially hinder compliance efforts.

This decision follows on the heels of a GST Council meeting led by Union Finance Minister Nirmala Sitharaman in February of the previous year. The council, which included state finance ministers, endorsed recommendations from a panel directed at curbing tax evasion in businesses dealing with pan masala and gutkha. It was proposed to shift the compensation cess levy mechanism on these products from an ad valorem to a specific rate-based system – a change deemed necessary to improve revenue collection from the early stages of the supply chain.

The actions taken thus far represent a proactive stance by the government to address taxation loopholes and regulatory shortcomings within the tobacco industry. This not only serves to protect legal businesses from the throes of economic disparity but also acts as a deterrent to illicit operations and tax evasion, securing vital revenues for economic development. The extended timeline is, therefore, not just an allowance for adjustment, but an assertion of the government’s intent to fortify the GST framework while considering industry preparedness.

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